Corn Ethanol Study Projects Price Hikes

With rising corn costs and declining corn availability having already increased retail pork prices and pork production costs during the past year, a new study indicates that the rapid increase in corn-based ethanol production could cause costs to rise even further.

Conducted by the Center for Agricultural and Rural Development at IowaStateUniversity in Ames, Iowa, the study assesses how large the U.S. biofuels sector could become and estimates the likely impacts it could have on crop markets, the livestock and poultry sectors, exports and grain-based wholesale and retail food prices.

Ethanol production since last August has boosted pork production costs by 30 percent – about $20 million a week – with similar increases for dairy, beef, eggs and poultry. Those cost increases have pushed U.S. retail food prices up by $14 billion a year. According to the CARD study, that amount will hit $20 billion under a scenario where crude-oil prices range from $65 to $70 a barrel and U.S. corn prices jump to $4.42 per bushel. The current price for a barrel of oil is $62.75.

The study also projects that U.S. ethanol production could reach 30 billion gallons by 2012, consuming more than half of U.S. corn, wheat and other coarse grain produced and triggering higher meat prices for consumers. It is expected to reduce all meat production, as well as dramatically cut into grain and meat exports. CARD projects if between now and 2016, corn prices average $4.42 a bushel (versus $2 as seen in August 2006), pork production costs would increase by 36.8 percent, production would decline by 9.2 percent, pork retail prices would increase 8.4 percent and U.S. exports would decline by 21 percent. This would reverse the many years of consecutive pork export growth.